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12 Questions on Markets and the Economy

Tuesday, June 10, 2008 | 07:19 AM

Today we are going try something a little different.

Rather then synthesize what's in the news, flavored with my opinions, I am going to ask several questions -- and leave the answering to you, the reader:

1) Economy: Is the US in a mild recession, or, will we successfully avoid one? How weak is consumer spending, and how much further can it fall? Might the US be entering a significant and prolonged downturn?

2) Inflation: How much inflation is in the system? How high are inflation expectations? Under normal circumstances, inflation moderates as an economy cools. Why has that not yet happened in the United States? Will it happen in the coming year?

3) Fed cuts: Are any further Fed cuts coming? Has the market accepted the possibility that more Fed cuts are unlikely? Are equities priced for potential Fed increases as a response to inflation?

4) Market technicals: Markets have been very choppy, with advances narrow, low volume affairs. Will the March lows holds? How fraught with danger are current market conditions? How significant is the failure of major indices at the 200 day moving average? The NASDAQ is holding up much better than the S&P or Dow -- Why?

5) Employment: How strong or weak is the job market in the United States? Why has job creation been so weak this cycle? Why are new unemployment claims still below 400,000? Why have we not seen layoffs in the multi-100,000 range? Is employment significantly affecting sentiment polls? What are the odds of a robust jobs recovery in the next 12-24 months?

6) Housing: Has the real estate market bottomed yet? How much further will home prices fall? When will inventory of real estate get worked down? When will home sales turnaround? When will real estate stop negatively impacting the macro economy?

7) Credit crunch: How much damage has been done to the financial sector? How much damage will be done in the future to the banks and brokers? Are we in the ninth inning, as some have posited, of the credit crunch? Or, do we still have all way to go, to work away through financial issues?

8) Tax rebate checks: Are they stimulating the economy? Are they merely paying for food and gas price increases?

9) Politics: What is the most likely outcome of the United States elections in November? How likely is a significant increase in the razor thin Democratic majority in the Senate? In the House? How likely is a full Democratic sweep including the presidency? What are the economic and market repercussions of such an event?

10) Sentiment: Why is sentiment so negative? Is it the war, employment, gas prices -- or something else altogether? Has sentiment reached an extreme level where it can be considered a contrary indicator?

11) Data analysis: There's been lots of chatter (elsewhere as well as here) about the reporting of economic statistics by the United States government. How accurate is the data that we get out of the BLS, BEA, Census Department, Federal Reserve, and other official outlets? Have we reached the point where this data has lost significance? What does this do to the credibility of these governmental agencies? Is it possible that this data can be improved?

12) Iraq, Iran, Afghanistan: The economy seems to have pushed the Middle Eastern war(s) off the front pages of the newspapers. How good or bad are things progressing in Afghanistan? How about the war in Iraq? There is a continued buzz about a late summer or early fall assault by Israel against the nuclear facilities in Iran (with tacit US approval). How would this affect the price of oil? The global economy? The elections in the United States?

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Please feel free to answer fully and completely in the comments section.